Monitise (LSE: MONI) (NASDAQOTH: MONIF.US) rose by more than 5% to 32p this morning, after the firm announced that it had integrated Apples Touch ID fingerprint authentication into the mobile banking app it provides for a Turkish bank.
On the face of it, this is pretty minor news: Monitise says that bank, Turkeys largest private bank, has more than 1.2 million customers who use its Cep mobile banking app, but only expects the fingerprint authentication to be used by thousands of users who have compatible iPhone models.
Whats the big deal?
In my view, the good news today isnt the Cep app update, but the principle behind it.
Monitises share price has fallen by 34% over the last month, thanks mainly to news that backer Visa has decided to assessits stake in the firm and intends to focus on developing its own in-house systems.
Critics of Monitise have suggested that this could be the beginning of the firms demise: it will be squeezed for profit and presence by larger payment processing peers who can develop their own technology.
That view has merit, up to a point, but what todays news highlights is that many of Monitises customers will never be large enough to justify developing their own technology from scratch.
Outsourcing makes sense
For all but the biggest companies, using industry-standard mobile banking technology developed by a trusted third party makes good financial and technical sense.
Visa may be able to justify and afford to develop its own solutions, but there are thousands of banks and mobile networks around the world which cannot do this. Paying to use Monitise technology will add value for these businesses, and I reckon that todays news has reminded the market of this potential.
Dont get carried away
However, just because Monitise has an attractive business model doesnt mean its current valuation is attractive for investors.
A share price of around 32p gives the firm a market capitalisation of more than 600m, despite the fact it lost 60.1m last year, only has revenues of 95m, and doesnt expect to make a profit until at least 2016.
Monitises growth also appears to be slowing: the firm only expects revenue growth of 25% in the current financial year, making its target of growing its user count from the current level of 30m, to 200m by 2018, look very ambitious.
For me, there is too much good news already priced into Monitise shares, especially as the companys ability to fund itself for another two years isnt entirely certain.
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Roland Head has no position in any shares mentioned. The Motley Fool UK owns shares of Monitise. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
